Marc Auerbach

Crossing the Income Chasm
(by Marc Auerbach)

[Submitted to KQED as a "Perspectives" piece in mid-2001, well before the Enron story broke. Piece not accepted]

Recently the San Jose Mercury News reported on the widening gap, really a chasm, between executive pay and worker pay in Silicon Valley. Whenever these types of reports are issued there seem to be two basic reactions.

Either you believe that this is fine and just part of the democratic, free-market, capitalist system that makes America great.

Or you think that this is unfair and reflects a basic lack of social justice in a system that simply enable the rich to get richer. The former argument makes the following points:

1. These are tough jobs and like top athletes or entertainers, they are in high demand and short supply and are compensated accordingly.

2. Execs are simply reaping the rewards for the vast wealth they created for all Americans.

The bottom line, they earned it fair and square, and America is the land of opportunity where everyone has a chance to make it big.

To all this I say hooey.

There is no doubt that it is hard to run a big company. If it were easy, there would be a lot more, well run companies. But from my vantage-point working for and witnessing 20 years of American corporate leadership, I'd say they mostly put their pants on one leg at a time like the rest of us.

Can we imagine that if less than 2% of our DNA separates us from a whole other species, that there is a 10 or 100 "X" difference between everyone else and top execs? I think not.

And as for the relative scarcity and star quality of these people, well let's say it's a whole lot easier to see Shaquille O'Neal's relative merit. He has a scorecard. Not just a scorecard of his team, but him personally: over the years, against different opponents, in clutch situations, with 4 personals. What do CEOs have? Stellar resumes of accomplishments by their own account even from companies that are now failing.

Are we truly saying that reasonable people couldn't agree how much annual income is too much? Would Oracle President Ray Lane, go on strike if he were paid less than the $234 million in cash and options he received last year?

Do we really mean that Enron Chairman Kenneth L. Lay wouldn't do just as good a job with somewhat less than the $123 million he grossed in option transactions in 2000?

Are we really comfortable with the idea that $10 million a year is not enough incentive to motivate good performance?

Free-market capitalism is a construct of our democracy. It can be changed to be more equitable. Here are some suggestions:

1. Establish a maximum multiplier between total executive compensation including stock and options, and the compensation of the lowest paid worker.

2. Extend the length of time it takes for stock sales to be eligible for the long-term capital gains tax rate.

3. Raise the minimum wage.

With a perspective I'm Marc Auerbach